How to Fill Out Form 5329 for Missed RMD
Learn the correct procedure for using Form 5329 after a missed RMD. This guide shows how to address the shortfall and request a waiver of the tax penalty.
IRS Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts,” is used to report tax penalties related to retirement accounts. A common use for this form is to address the penalty for failing to take a Required Minimum Distribution (RMD). Individuals who do not withdraw the mandated amount from accounts like traditional IRAs or 401(k)s by the deadline use this form to calculate the excise tax. The form is also used to request that the Internal Revenue Service (IRS) waive this penalty if the failure was due to a reasonable error.
Information and Documents Needed
To complete Form 5329, you will need the RMD amount for the year. This is calculated by dividing the retirement account’s balance as of December 31 of the prior year by a life expectancy factor from the IRS’s Uniform Lifetime Table in Publication 590-B. Many financial institutions also calculate the RMD for account holders and include it on statements.
You also need the actual amount distributed from the account during the year, which may be zero. The difference between the required and actual distribution is the shortfall. Finally, you must obtain the correct version of Form 5329 for the year the RMD was missed from the IRS website.
Completing Form 5329 for a Missed RMD
For a missed RMD, focus on Part IX, “Additional Tax on Excess Accumulation in Qualified Retirement Plans.” Other sections of the form can be disregarded if a missed RMD is the only issue. This part guides you through calculating the shortfall and any potential penalty.
The calculation starts on Line 52, where you enter the minimum required distribution amount. On Line 53, enter the total distributions you took during the year. Line 54 is the result of subtracting Line 53 from Line 52, which is the shortfall. If this amount is zero or less, you do not have a shortfall and do not need to complete the form.
Line 55 is for calculating the penalty. The standard excise tax is 25% of the shortfall from Line 54, which can be reduced to 10% if you correct the shortfall within a two-year correction window. If you are requesting a full waiver for reasonable cause, do not calculate the tax. Instead, write “RC” and the shortfall amount on the dotted line next to Line 55, and enter “-0-” on the line for the additional tax.
Filing the Form and Requesting a Waiver
When requesting a waiver, you must submit a letter of explanation with Form 5329. The letter should state that the failure to withdraw was due to a reasonable error and that you are taking steps to fix it. You should withdraw the missed RMD as soon as the error is discovered and state in the letter that this has been done.
If you have not yet filed your annual income tax return (Form 1040) for the year of the missed RMD, attach Form 5329 and the letter to your return. If you have already filed your tax return, you must sign Form 5329 and mail it separately with the letter to the IRS service center where you normally file.
The IRS will review the form and letter and can waive the penalty if it agrees the failure was for a reasonable cause, such as a serious illness or a financial institution’s error. The agency will mail a notification indicating if the waiver was approved or denied. A denial notice will include instructions for paying the penalty.